Cushion yourself

Aspeaker at a 2007
farmer meeting salivated like a puppy eyeing a pork chop as he described
agriculture’s rosy future.

This was about the time when
corn and soybean prices were making their ascent into the $5-per-bushel (for
corn) and double-digit-per-bushel (for soybeans) ranges. During the
question-and-answer session, though, one farmer summed up the audience’s mood.

“When,” he asked, “does the
other shoe drop?”

In some ways, the current
spike in grain prices and land values mirror the skyrocketing 1970s.

The go-go lenders are back. Input salespeople are your best
buddies. Outside investors are eyeing farmland and agricultural companies.
Could a 1980s-like crash be ahead?

Differences exist.

Many farmers have stronger
balance sheets that can fuel land and input purchases. Ethanol production,
solely the domain of major agricultural processors 25 years ago, is now funded
by many farmer investors. Foreign demand seems solid due to China’s demand for
U.S. grains.

Still, it’s a good idea to
keep the following advice in mind from Brent Gloy, Purdue University
agricultural economist, as you navigate your farm’s future.

1. Use Debt Cautiously

Debt can allow you to access
good opportunities, such as farmland. “If it’s too good to be true, it probably
is,” says Gloy. “But occasionally, things come along that are good
opportunities. Use debt wisely and in moderation. You can’t use it all the
time. But when you look at studies of businesses lasting 50, 75, or 100 years,
almost all have in common carrying a moderate amount of debt.”

2. Keep Some Cash

If you’re having good times
now, squirrel away some money you have and put it in cash to tide you through
future rough times.

“Don’t just think about
working capital,” says Gloy. “Working capital differs from the cash reserves
you need.”

3. Be The Decider

Ever ask a barber if you
need a haircut? Or ask a seed salesman if you should buy seed? Of course you
need these goods, they’d say. Their advice is tailored by their point of view.
Gloy notes it’s important to seek input from others, but you should make the
final decision. After all, since you have your best interests at heart, you’re
the best decision-maker.